Petition — Williams v. City of Chicago

NoRY - 387

Iu the

Supreme Court of the Anited States

RICHARD B. WILLIAMS and PEARL JOHNSON,

Petitioners,

vs.

CITY OF CHICAGO, ete., et al.,

Respondents.

PATRICK E. GORMAN and DOROTHY GORMAN, etal.,

Petitioners,

vs.

CITY OF CHICAGO, ete., et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ILLINOIS

Barry J. FREEMAN

Peter B. Carey

One North LaSalle Street

Chicago, Illinois 60602

(312) 372-1462

Counsel for Petitioners.

Evaene I. Pavaton

Rosert F. CoLeMan

Rosert S. ATKINS

Of Counsel.

The Scheffer Press, Inc.—(312) 263-6850

PAGE

NR BI sinstilises Victeecbesesititeechtistiniatintuntiidunienetcninebtntncnnesestiids 2

I i ala acca nitaic iccetinintiniiniaee 2

Questions Presented ................+ ma ET Sar ce OO 2

ail denictniigbandomation 3

rE clicteniionsn 3

Reasons for Granting the Wit .0............ccccccccsesesseseeseees 6

Taste Or AUTHORITIES

CASES :

Allied Stores of Ohio v. Bowers, 358 U.S. 522 (1959)

Oe ae cn Ween eae RAEN Ae nae OOS TE TO eR IE 7, 8, 10

Boston Stock Exchange v. State Tax Commission,

— U.S. —, 50 L.Ed. 514 (1977) oooceccceccccesesseeees "3

Lawrence v. State Tax Commission, 286 U.S. 276

I nN sia Gisaiaee 7

Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S.

RRS RTS SP IRD oa oe 7

Madden v. Kentucky, 309 U.S. 83 (1940) .......cccccccceseeeeee 8

Nashville C @ St. L. R. Co. v. Browning, 310 U.S.

RRR I cereTSrO ones oi ove Se 12

Rapid Transit Co. v. New York, 303 U.S. 573 (1938) .. 12

San Antomo School District v. Rodriguez, 309 U.S. 83

eine AR AR RAE ar ee i SEAN FSM ace 8

Wheelimg Steel Corp. v. Glander, 337 U.S. 562 (1949) .. 9

WHYY v. Glassboro, 393 U.S. 117 (1968) ..........ccc0e 11

Stature :

Chicago Municipal Code, $200.1 et seq. (1973) ......passim

In Tue

SUPREME COURT OF THE UNITED STATES

No.

RICHARD B. WILLIAMS and PEARL JOHNSON,

Petitioners,

vs.

CITY OF CHICAGO, etc., et al.,

Respondents.

PATRICK E. GORMAN and DOROTHY GORMAN, et al.,

Petitioners,

vs.

CITY OF CHICAGO, ete., et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ILLINOIS

Richard B. Williams and all persons similarly situated

and Patrick E. Gorman and all persons similarly situated’

petition for a writ of certiorari to review the judgment

of the Supreme Court of Illinois in this case.

*The trial courts’ rulings in favor of these class

plaintiffs have resulted in the creation of funds which

now exceed $12,000,000.00 in segregated tax payments.

OPINION BELOW

The opinion of the Supreme Court of Illinois, is re-

ported at Williams v. City of Chicago, 66 Ill. 2d 423, 362

N.E.2d 1030 (1977), and appended as Appendix A. The

opinion of the Appellate Court of Illinois is reported at

Wiliams v. City of Chicago, 36 Ill. App. 3d 216, 343 N.E.

2d 539 (1976), and appended as Appendix B.

JURISDICTION

The judgment of the Supreme Court of Illinois was

entered on March 23, 1977. 'The Supreme Court of Illinois

denied the Petition for Rehearing filed by plaintiffs-

appellees on May 26, 1977. The jurisdiction of this Court

is invoked under 28 U.S.C. §1254(1).

QUESTIONS PRESENTED

(1) Whether the provisions of the Chicago Transaction

Tax, which taxes non-residents of the City of Chicago

at a lower rate than residents, unconstitutionally

discriminates against residents in violation of the

Equal Protection Clause of the Fourteenth Amend-

ment to the United States Constitution.

(2) Whether the provision of the Chicago Transaction

Tax Ordinance which subjects the iease of only cer-

tain kinds of personal property to taxation creates

an arbitrary and unreasonably discriminatory classi-

fication in violation of the Equal Protection Clause

of the Fourteenth Amendment to the United States

Constitution.

vo ae

STATUTE INVOLVED

Chicago Transaction Tax Ordinance, Municipal Code

of Chicago, §§ 200.1 et seg. (1973).

The relevant portions of the statute are cited in Ap-

pendix C.

STATEMENT

The Chicago Transaction Tax Ordinance, enacted by

the City of Chicago pursuant to its home rule powers

under the 1970 Illinois State Constitution, imposes a tax

on transactions consummated in the City of Chicago in-

volving the transfer of real estate and the lease or rental

of certain types of personal property.* The ordinance

is distinguished by two drafting oddities. First, although

the ordinance was apparently meant to apply to “the lease

or rental of any personal property,” Municipal Code of

Chicago, §200.1-2A (1973), the term “personal property”

is limited in its definition to only certain itemized tangible

property, Municipal Code of Chicago §200.1-2A (5) (a)

and (b) (1973). By defining the words “personal prop-

erty” exclusively, rather than inclusively, the ordinance

sets up the perplexing dichotomy of taxing the lease of

duplicating or copy machines, but not the lease of

printing equipment. While the lease of chairs, carpets,

and tables for one’s home is taxed, the lease of the

burglar alarm system that protects that property is

exempt from the City ordinance. The lease of ice making

machines are exempt from taxation, yet the lease oi the

*The Chi Transaction Tax Ordinance bears a re-

markable similarity to the New York state statute this

Court recently declared unconstitutional, albeit on com-

merce clause grounds, in Boston Stock Exchange v. State

Tax Commission, ........ Ges widsen 50 L.Ed. 514 (1977)

a

freezer that holds that ice is tated. Because the ordi-

nance’s definition of “personal property” is an exclusive

one, the ordinance creates classifications that draw dis-

tinctions without differences.

Secondly, the drafters of the ordinance pit residents

of the City of Chicago against non-residents by taxing

non-residents at a lower rate. Although the ordinance

imposes the tax based upon the dollar amount of the

particular transaction consummated, transactions made

by non-residents of the City are taxed at lower rates

than transactions made by residents. Commencing Janu-

ary 1, 1974, the rate applicable to non-residents is 95%

of the tax rate applied to residents. The non-resident

rate decreases each year on a sliding scale until January

1, 1978, when it reaches a permanent level of 50% of

the rate paid by residents. Although the ordinance places

the “ultimate incidence of and liability for payment”

upon the lessee of personal property or the grantee or

purchaser of real property, the lessor or grantor has

the duty of collecting the tax and remitting it to the

City. The Chicago Transaction Tax thus makes it possible

for a non-resident, purchasing real estate in Chicago

from a Chicago resident, to pay one-half the transaction

tax that a resident of Chicago would have to pay for

the same property, even if that individual were to pur-

chase it from a non-resident seller. Although the incidence

of taxation is meant to fall on the transaction itself, the

ordinance, in essence, distinguishes between purchasers

and lessees solely because of their residence.

The plaintiffs brought separate class actions in the

Cireuit Court of Cook County for a declaratory judgment

and injunctive relief against defendants, the City of

Chicago and its Director of Revenue, challenging the

aa ae

constitutionality of the ordinance on various grounds.

In the Williams suit, plaintiffs attacked those portions

of the ordinance which imposed a tax on the lease or

rental of personal property. The trial court denied the

defendants’ motion to dismiss the complaint, and on

interlocutory appeal the appellate court held the tax

ordinance invalid on the grounds that it created an

unconstitutional classification in defining the types of

personal property lease transactions subject to the tax.

The Supreme Court of Illinois then allowed defendants’

petition for leave te appeal.

In the Gorman suit, plaintiffs challenged the provisions

of the ordinance relating to the tax on real estate trans-

fers. The trial court allowed plaintiffs’ motion for sum-

mary judgment and entered an order declaring the

ordinance unconstitutional as applied to transfers of real

property on the ground, inter alia, that it arbitrarily

taxed non-residents of the city at a lower rate than resi-

dents.

The court enjoined the city from disbursing taxes

collected except into a segregated fund. Currently, the

funds in Williams and Gorman exceed $12,000,000.00.

The defendants, in Gorman, filed a notice of appeal and

the Supreme Court of Illinois allowed plaintiffs’ motion

for direct appeal to the Supreme Court, and for consoli-

dation with the appeal in Williams.

The Supreme Court of Illinois reversed the judgment

of the Appellate Court, in Williams, and the trial court,

in Gorman, on the grounds that the ordinance did not

unreasonably classify which personal property trans-

actions would be subject to the tax, and the tax differen-

tial favoring non-residents was not arbitrary. Subsequent-

ly, that Court denied plaintiffs’ petition for rehearing.

REASONS FOR GRANTING THE WRIT

This case presents a scheme of state taxation involving

palpably arbitrary classifications of both the persons

subject to the tax and the transactions upon which the

tax is imposed. While petitioners recognize that the

Equal Protection Clause accords state legislatures broad

leeway in classifying for taxation purposes, the classifi-

cetions under challenge here are devoid of any conceivable

rational basis to sustain them.

In the Williams case, the transaction which is the

subject of the tax consists of the lease or rental of items

of personal property. The invidious discrimination arises

because the ordinance taxes the lease or rental of certain

items of personal property, but exempts from taxation

the lease or rental of similarly situated items of prop-

erty. For example, the ordinance taxes the lease or

rental of all items of construction or demolition equip-

ment, but does not tax the lease or rental of other types

of industrial equipment and industrial machinery. Similar-

ly, the ordinance imposes a tax on the lease or rental of

office and computing equipment, but excuses from taxation

the lease or rental of similar items of equipment such as

printing equipment and telephone equipment. There is sim-

ply no conceivable rational basis for the difference in treat-

ment the ordinance accords to these various items of simi-

lar personal property.

Nor is there any rational basis with respect to the

classification of the persons subject to the tax in both

the Williams and the Gorman cases.* Where the trans-

*In Gorman, petitioners raise no challenge to the ordi-

nance in respect to the types of transactions subject to

the tax. This is because the portion of the ordinance

involved in Gorman imposes a tax on transactions con-

sisting of the transference of title to all real property,

_

action consists of the lease or rental of personal property,

as in Williams, the ultimate incidence of the tax falls upon

the lessee. Where the transaction consists of the trans-

ference of title to real property, as in Gorman, the

grantee or purchaser bears the burden of the tax.

The amount of the tax, however, varies depending upon

the residence of the particular taxpayer. In the case of

a taxpayer who is a non-resident of the City of Chicago,

the tax rate is substantially lower than that imposed

upon an identical transaction in which the taxpayer

happens to be a resident of the City of Chicago. As of

January 1, 1978, the rate for non-residents is 50% that

of the rate for resident taxpayers. This lower rate is

applicable to non-residents regardless of their role in

the transaction, or the size or type of transaction. It

represents the purest form of invidious discrimination.

Petitioners recognize the heavy burden placed upon

those who challenge state taxation schemes on equal

protection grounds. In describing the limits of the Equal

Protection Clause on state power in this area, this Court

has employed the phrase “palpably arbitrary or

“invidious.’’? Lehnhausen v. Lake Shore Auto Parts Co.,

410 U.S. 356, 360 (1973). Too, this Court has sustained

state tax laws because challenges failed to demonstrate

that the classifications created were “arbitrary or capri-

cious,” Lawrence v. State Tax Commission, 286 U.S. 276,

284 (1932), “invidious or palpably arbitrary,” Allied

Stores of Ohio v. Bowers, 358 U.S. 522, 520 (1959), or

* (Continued)

whether residential, commercial or industrial. Thus, so

far as the Gorman plaintiffs are concerned, the ordinance

contains no invidious classifications with respect to the

transactions upon which the tax is imposed.

“hostile and oppressive” Madden v. Kentucky, 309 U.S.

83, 88 (1940). In San Antonio School District v. Rod-

riguez, 411 U.S. 1, 41 (1973), this Court reiterated the

strictness of the Equal Protection test in the context of

state tax laws:

“It has . . . been pointed out that in taxation, even

more than in other fields, legislatures possess the

greatest freedom in classification. .. . [T]he presump-

tion of constitutionality can be overcome only by the

most explicit demonstration that a classification is a

hostile and oppressive discrimination against particu-

lar persons and classes.”

Despite the leeway possessed by the states in this

area and the heavy burden borne by those who would

challenge state taxation schemes, there is a point beyond

which states may not go without transgressing the Equal

Protection Clause. In Allied Stores of Ohio v. Bowers,

358 U.S. 522, 527 (1959), this Court defined that point

as follows:

“The State must proceed upon a rational basis and

may not resort to a classification that is palpably

arbitrary. The rule often has been stated to be that

the classification ‘must rest upon some ground of

difference having a fair and substantial relation to

the object of the taxations.’”

With respect to the residency classification in the

transaction tax ordinance, the lower rate provided to a

non-resident purchaser or lessee simply does not rest

upon a difference “having a fair and substantial relation

to the object of the legislation.” The classification chal-

lenged here arbitrarily discriminates against resident tax-

payers by taxing non-residents at a lower rate. The

discrimination transgresses the limits of the Equal Pro-

a

tection Clause because the residency of the taxpayer

bears absolutely no relationship to the object of the

legislation. The statutory objective is taxation of trans-

actions involving the transfer or rental of real or per-

sonal property located -or used in the City of Chicago.

Although there is a difference between residents and

non-residents of the City, that difference is wholly un-

related to the object of the legislation.

This palpably discriminatory feature of the ordinance

is indistinguishable from the residency classification in-

validated on equal protection grounds by this Court in

Wheeling Steel Corp. v. Glander, 337 U.S. 562 (1949).

There, Ohio imposed a tax on foreign corporations’

accounts receivable derived from sales of goods manu-

factured within the state. Identical accounts receivable

owned by residents and domestic corporations were

exempt from the tax. In striking down the classification

in question, the Court stated:

“Tt seems obvious that appellants were not accorded

equal treatment, and the inequality is not because

of the slightest difference in Ohio’s relation to the

decisive transaction, but solely because of the differ-

ent residence of the owner.” Wheeling Steel Comp.

v. Glander, 337 U.S. 562, 572 (1949).

The residency classification at issue here stands upon

the same footing. A lower tax rate is accorded to non-

residents without regard to the size or nature of the

transaction being taxed, and regardless of the City of

Chicago’s relation to that transaction. The inequality

of treatment arises solely because of the residency of

the taxpayer and bears no relation to the objective of the

legislation.

_— =

Moreover, none of the “conceivable rational bases”

proferred by the City of Chicago provide the constitu-

tional nexus between the residency distinction and the

object of the tax. The City first suggests that the taxing

discrimination is justified because a lower rate for non-

residents reflects the fact that residents are likely to

make greater use of services provided by the City and

therefore should be taxed at a higher rate. To say that a

non-resident who purchases or rents property located

in the City of Chicago, for use in the City of Chicago,

does not utilize the services of the City to the same

degree that a resident does with respect to that property

is patently false. City services, such as water, police and

fire, would be at the same level regardless of the property

owner’s residence. More importantly, it is not the property

which is being taxed, but rather transactions involving

the sale or lease of such property. Such transactions in

themselves bear no relationship whatsoever to the ser-

vices offered by the City.

It is equally absurd for the City to suggest that a

lower tax rate for non-residents encourages them to

purchase or rent property in the City of Chicago. To be

sure, such a suggestion was found by this Court, in

Allied Stores of Ohio v. Bowers, supra, sufficient to justify

a different tax for residents and non-residents. However,

in Allied Stores of Ohto, the state could reasonably

justify its tax scheme as an incentive to non-resident

investment since the tax was a property, rather than

a transaction, tax and the favorable treatment accorded

non-residents was a total exemption from taxation. By

contrast, in the instant case, no tax was imposed upon

real estate and personal property transactions prior to

the enactment of the Chicago Transaction Tax Ordinance.

When an exemption from taxation is compared with

on

—_ =

the imposition of a tax, albeit at a lower rate, the fallacy

of the City’s incentive argument becomes obvious. It is

implicit in the City’s argument that any tax will dis-

courage the purchase or rental of property. Accordingly,

the imposition of a lower tax on non-residents simply will

not encourage them to purchase or lease real or personal

property in the City of Chicago. More logically, it will

discourage such purchasing and leasing.

Finally, the City suggests that administrative conveni-

ence is a justification for the differential tax rate. The

City argues that a lower tax rate encourages non-resi-

dents to pay the tax. Again, any tax, albeit lower, can

in no way constitute an inducement to pay the tax. More

importantly, as the Supreme Court of Illinois indicated

in its opinion, the obligation to collect and pay the tax

is borne by the grantor or lessor, and the residency-of

the grantor or lessor is irrelevant. The non-resident

lessee or purchaser, upon whom the incidence falls, and

whose residency determines which tax rate applies, simply

does not cvilect and remit the tax. That obligation

belongs to the other party to the transaction taxed.

Thus, the administrative convenience argument is totally

specious because the non-resident taxpayer has nothing

to do with the collection and remittance of the tax. See,

e.g., WHYY v. Glassboro, 393 U.S. 117, 120 (1968).

What has been said of the ordinance’s palpably arbi-

trary classification of the persons taxed applies with

equal force to the ordinance’s classification of the trans-

actions subject to the tax.‘ A state is certainly free to

impose a tax only upon certain property or callings, but

* As indicated, a classification of the persons taxed is

challenged in both the Williams and Gorman cases, while

the challenge to the classification of the transactions

subject to the tax arises only in the Williams case.

—_—,—

the classification thereby created must be based upon

some real and substantial difference between those taxed

and those exempted from taxation. Cf. Nashville, C. &

St. L. R. Co. v. Browning, 310 U.S. 362 (1940); Rapid

Transit Co. v. New York, 303 U.S. 573 (1938). The con-

stitutional vice of the ordinance in question, in Williams,

and the characteristic which distinguishes it from the

classifications sustained by this Court in other cases, is

that there is no perceptible difference between the leasing

transactions subject to the tax and those upon which no

tax is imposed.

It is important to remember that the ordinance here

is not a tax upon various classes of property, but is a

tax upon leasing and rental transactions themselves.

Thus, there can be no basis for distinguishing between

a tax upon the lease or rental of construction and demoli-

tion equipment, and a tax upon the lease or rental of

other industrial equipment and machinery. While there

may be some small difference between construction and

industrial equipment, there is no difference between the

lease or rental of those items of equipment. Yet, in one

instance, there is a tax, and in the other there is none.

Clearly, the Equal Protection Clause precludes such

arbitrary classifications.

In conclusion, petitioners ask this Court to review,

on equal protection grounds, a tax classification predi-

cated upon residency alone, when the residency of the

taxpayer bears absolutely no relationship to the nature

of the transaction being taxed. Also, petitioners seek

review, in Williams only, of a taxing scheme which im-

poses a tax upon some lease or rental transactions, and

exempts other lease or rental transactions, without regard

to any difference in those transactions.

am 43 ...

CONCLUSION

For the foregoing reasons, petitioners respectfully urge

that this Petition for a Writ of Certiorari to the

Supreme Court of Illinois should be granted.

Respectfully submitted,

-

“

Barry J. Freeman

Peter B. Carry

One North LaSalle Street

Chicago, Illinois 60602

(312) 372-1462

Counsel for Petitioners.

Evacene I. PavaLon

Rosert F’. CoLeMan

Rosert S. ATKINS

Of Counsel.

Richard B. WILLIAMS et al., Appellees,

v.

The CITY OF CHICAGO et al., Appellants.

Patrick E. GORMAN et al., Appellees,

v.

The CITY OF CHICAGO et al., Appellants.

Nos. 48399, 48611.

Supreme Court of Lllinois.

March 23, 1977. -

Rehearing Denied May 26, 1977.

UNDERWOOD, Justice.

These consolidated appeals are concerned with the con-

stitutionality of the Chicago Transaction Tax Ordinance,

which imposes a tax on transactions consummated in the

city of Chicago involving the transfer of real estate and

the lease or rental of certain types of personal property.

(Municipal Code of Chicago, ch. 200.1.) The plaintiffs

brought separate class actions in the circuit court of Cook

County for a declaratory judgment and injunctive relief

against defendants, the city of Chicago and its Director

of Revenue, challenging the constitutionality of the ordi-

nance on various grounds. Cause No. 48399 involves a

suit filed by plaintiffs Richard B. Williams and Pearl

Johnson attacking those portions of the ordinance dealing

with the tax on the lease or rental of personal property.

The trial court denied the defendants’ motion to dismiss

the complaint, and on interlocutory appeal the appellate

court held the tax ordinance invalid on the grounds that

it created an unconstitutional classification in defining the

=

types of personal property transactions subject to the

tax. (Williams v. City of Chicago (1976), 36 Ill.App.3d

216, 343 N.E.2d 539.) We allowed defendants’ petition for

leave to appeal. In cause No. 48611, plaintiffs Patrick E.

Gorman and Dorothy Gorman brought suit challenging

those provisions of the ordinance relating to the tax on

real estate transfers. The trial court allowed plaintiffs’

motion for summary judgment and entered an order de-

claring the ordinance unconstitutional as applied to trans-

fers of real property on the grounds that it arbitrarily

taxed nonresidents of the city at a lower rate than resi-

dents and was vague as to the circumstances which would

make the lower tax rate applicable. The court enjoined the

city from further collecting the tax on real estate trans-

fers or from disbursing taxes already coilected except into

a segregated fund. The court further determined that

those who had paid the tax constituted a class of persons

entitled to a refund of the taxes they had paid. The defen-

dants filed notice of appeal, and we allowed plaintiffs’

motion for direct appeal to this court pursuant to Supreme

Court Rule 302(b) (58 Ill.2d R. 302(b)) and for consoli-

dation with the appeal in Williams.

The Chicago Transaction Tax Ordinance was enacted

by the city of Chicago pursuant to its home rule powers

under the 1970 State Constitution. It imposes a tax based

on the dollar amount of all transactions consummated in

the city of Chicago after January 1, 1974, involving the

transfer of title to real property situated within the city

and the lease or rental of specified items of personal

property. Transactions made by nonresidents of the city

are taxed at lower rates than transactions made by resi-

dents. Commencing January 1, 1974, the rate applicable

to nonresidents is 95% of the tax rate applied to resi-

dents. The nonresident rate decreases each year on a slid-

ing scale until] January 1, 1978, when it reaches a perma-

nent level of 50% of the rate paid by residents. The ordi-

nance specifies that the “ultimate incidence of and liabil-

ity for payment of said tax shall be borne by” the lessee

of personal property or the grantee or purchaser of real

—

property, respectively. However, the lessor or grantor has

the duty of collecting the tax and remitting it to the city.

In cases where taxes “have been paid in error” to the

city, a procedure is set forth for credits and refunds to

persons who have collected and remitted the tax. How-

ever, there are no provisions authorizing lessees or grant-

ees who bear the burden of the tax to file claims for re-

funds or pay taxes under protest.

In view of the conclusions reached by the appellate

court concerning the classification of personal property

set forth in the ordinance, it is appropriate to examine

those provisions in some detail. Section 200.1-2 provides

in pertinent part:

“200.1-2. There is hereby imposed and shall im-

mediately accrue and be collected a tax, as herein

provided, on all transactions designated herein, in-

cluding sales, agreements of sale, agreements to sell,

memoranda of sales, deliveries or transfers of the

objects of such sales, agreements, or memoranda,

leases and lease or rental agreements and memoranda,

as follows:

A. Transactions consummated in the City of

Chicago involving the lease or rental of any per-

sonal property, valued in money, * * * made after

the 1st day of January, 1974 * * *.”

Section 200.1-2(A) contains 5 subsections. Subsection 1

specifies the tax rate; subsection 2 provides that the inci-

dence of tax and liability for its payment shall be borne

by the lessee but that the person making or effectuating

the lease or rental has the duty to pay the tax to the city;

subsection 3 provides for payment of the tax through

purchase of tax stamps; subsection 4 specifies that lease

or rental agreements must contain information including

an identifying number; and subsection 5 defines the per-

sonal property subject to the tax as follows:

“S(a) As used in paragraph 200.1-2A, personal

property means motor and other vehicles, which shall

——

inelude but are not limited to automobiles, automobile

trailers, bicycles, motor driven bicycles, motorcycles,

buses, trucks, truck tractors, truck trailers, construc-

tion and demolition equipment, which shall include but

is not limited to ditch digging equipment, well boring

apparatus, road construction and maintenance equip-

ment such as spreaders, mixers, loaders, graders, roll-

ers, scarifiers, scrapers, earth movers, power shovels,

cranes, compressors, concrete mixers, garden and land-

scaping equipment, ladders, floor machines, search-

lights, floodlights, hand and electrical tools, spraying

equipment, and scaffolding; household and office equip-

ment, which shall include but is not limited to carpets

and rugs, chairs and tables, chinaware and glassware,

furniture, beds, television and radio, washing ma-

chines, dryers and ironers, water softening equipment;

clothing, including but not limited to formal wear and

other types of clothing; office and computing equip-

ment, including but not limited to data processing

equipment, computers, accounting and bookkeeping

machines, adding and calculating machines, type-

writers, addressing machines, dictating machines, dup-

licating machines, mailing machines, copy machines;

and such miscellaneous equipment as musical instru-

ments.

(b) As used in paragraph 200.1-2A, personal prop-

erty shall also mean leased time on equipment not

otherwise itself rented, such as leased time for use

of calculators, computers, data processing equipment,

tabulating equipment, accounting equipment, copying

machines, duplicating machines, addressing machines,

whether said leased time is fully or partially utilized.”

The Williams complaint alleged that the plaintiffs were

residents of the city of Chicago and on various occasions

since January 1, 1974, had been charged and had paid

the Chicago transaction tax when they leased automobiles

under written lease agreements executed in the city of

Chicago. They asserted the propriety of the suit as a

class action and alleged that the Chicago transaction tax

\

ee

violated the due process and equal protection clauses of

the State and Federal constitutions; that the ordinance

contained an unreasonable, arbitrary and discriminatory

classification in that “the definition of the types and cate-

gories of personal property subject to the tax as set forth

in .Section 200.1-2(A)(5)(a), (b) fails to include many

types, categories and articles of personal property, which

are thereby exempt from taxation, including but not limited

to such personal property as printing equipment, signs,

ice making machines, burglar alarms, telephone equipment,

industrial equipment and industrial machinery”; that the

provisions of the ordinance requiring the city of Chicago

residents to pay a greater tax than the tax imposed on

nonresidents of the city of Chicago are discriminatory,

arbitrary and unreasonable; that lessees of personal prop-

etry cannot determine with reasonable assurance what

transactions involving the lease or rental of personal prop-

erty are subject to taxation since the terms used in the

ordinance such as “transactions consummated in the City

of Chicago,” are vague, unclear and ambiguous; that

lessors of personal property continue to collect the tax

from plaintiffs and the members of the class which they

represent and remit the tax to the defendant Director of

Revenue for the city of Chicago; and that “[p]laintiffs

have no remedy except by this action for injunctive relief

to prevent the continuing irreparable injury currently

being sustained by plaintiffs and members of the class.”

Plaintiffs prayed, inter alia, that the court declare the

ordinance unconstitutional and void; that pending the trial

of the action and until further order of court the defen-

dant Director of Revenue for the city of Chicago be di-

rected to hold the proceeds of the Chicago transaction tax

in a separate fund and not distribute such taxes to the

city of Chicago; that after trial of the action the court

order in its final decree that the proceeds so held by the

defendants be refunded to the persons who show proper

proof that they have paid the tax and direct that the

balance, less plaintiffs’ costs, expenses and attorneys’ fees,

be paid to the city of Chicago; and that defendants and

their successors in interest be permanently enjoined in

—

the final decree from collecting the Chicago transaction

tax from and after the date of final decree.

The court allowed plaintiffs’ motion for preliminary in-

junction enjoining the defendants from disbursing any

moneys received from the collection of the Chicago trans-

action tax on the lease or rental of personal property ex-

cept into a segregated fund to be maintained until further

order of court. The defendants’ motion to strike and dis-

miss the complaint on the grounds that the plaintiffs had

no standing and had not alleged sufficient facts establish-

ing the invalidity of the ordinance was denied, and it was

from this order that the defendants brought an inter-

Tocutory appeal to the appellate court.

In the Gorman case the plaintiffs alleged that they were

residents of the city of Chicago and on September 30,

1974, had purchased real property situated in Chicago as

to which they had paid a tax in the amount of $50 as re-

quired by the Chicago Transaction Tax Ordinance. After

asserting grounds for bringing a class action, the com-

plaint alleged as to the tax on real estate transactions

virtually the same infirmities as were alleged in the Wil-

liams case regarding the tax on personal property trans-

actions; the prayers for relief were nearly identical.

The defendants’ motion to strike and dismiss the com-

plaint for lack of standing and failure to allege facts

establishing the invalidity of the ordinance was also de-

nied in this case, and the trial court allowed plaintiffs’

motion for issuance of a preliminary injunction similar

to that in the Williams case. The defendants subsequently

filed their answer denying the material allegations of the

complaint. The plaintiffs then filed a motion for summary

judgment supported by an affidavit of Patrick E. Gorman

which stated that at all pertinent times he and his wife

Dorothy were residents of the city of Chicago; that they

had purchased real property at 3180 North Lake Shore

Drive in Chicago; and that in connection with the pur-

chase of said rea] estate he and his wife had paid the

Chicago Transaction tax in the amount of $50 in accor-

aan with the terms of the ordinance. The trial court

== Tg —

allowed the motion and found that plaintiffs had standing

to bring the action individually and as representatives of

a class consisting of all purchasers or grantees of real

property located within the city of Chicago who had paid

or who had become liable for payment of the tax pursu-

ant to provisions of the ordinance beginning January l,

1974, and thereafter; that the Chicago Department of

Revenue processes 40,000 real estate transaction tax decla-

rations annually; that plaintiffs’ claim was typical and

representative of the class they sought to represent; “that

the provisions of the said Ordinance providing for the

transaction tax are vague and lacking specificity as to

the circumstances which would make the lower tax rate

applicable and as to when a transaction is ‘consummated

in the City of Chicago’ for purposes of the said ordinance” ;

“that the classification contained in the ordinance of

persons and property to be taxed is arbitrary and without

a rational basis”; and “that an injunction enjoining the

defendants from enforcing the provisions of the said

transaction tax ordinance is the only adequate remedy

available to the plaintiffs and the class which they repre-

sent.” The court enjoined the defendants from enforcing

the provisions of the transaction tax as it applied to trans-

fers of title to real property located within the city but

stayed its enforcement pending appeal. However, the court

continued in effect its previous injunction enjoining de-

fendants from disbursing any moneys received from the

collection of the real estate transfer tax except into the

segregated fund. The court further found that the plain-

tiffs and the members of the class they represent were

entitled to repayment of the taxes paid on real estate

transfers pursuant to the provisions of the ordinance in

question and that the mechanism for such repayment

would be subject to further order of the court at the con-

clusion of any appeal.

The principal thrust of plaintiffs’ attack on the consti-

tutionality of the ordinance is that the provisions defin-

ing the types of personal property subject to the tax and

the provisions establishing a lower tax rate applicable to

transactions involving nonresidents create unreasonable

—

and discriminatory classifications. They argue that such

classifications are devoid of any rational basis and bear

no relationship to the object of the tax.

It is well established that legislative bodies have

very broad powers in establishing classifications defining

the objects of taxation which will withstand constitutional

attack so long as the classifications are reasonable. (Lehn-

hausen v. Lake Shore Auto Parts Co. (1973), 410 US.

356, 93 S.Ct. 1001, 35 L.Ed.2d 351; Titus v. Tezas Co.

(1973), 55 Ill.2d 437, 303 N.E.2d 361; Fiorito v. Jones

(1968), 39 Ill.2d 531, 236 N.E.2d 698; Klem v. Hulman

(1966), 34 Ill.2d 343, 215 N.E.2d 268; People ex rel. Hol-

lamd Coal Co. v. Isaacs (1961), 22 Ill.2d 477, 176 N.E.2d

889; see also Ill.Const.1970, art. IX, sec. 2.) The legisla-

tive determination as to those persons who are to be

taxed must not be arbitrary (City of Chicago vy. Ames

(1937), 365 Ill. 529, 7 N.E.2d 294), and the classification

must bear some reasonable relationship to the object of

the legislation (Modern Dairy Co. v. Department of Reve-

mue (1952), 413 Ill. 55, 108 N.E.2d 8). However, it is

equally well settled that there is a presumption favoring

the validity of classifications made by legislative bodies

in taxing matters and that one who attacks them has the

burden of proving such classifications to be arbitrary and

unreasonable. (Jacobs v. City of Chicago (1973), 53 111.2d

421, 292 N.E.2d 401; Tiiorpe v. Mahin (1969), 43 IIl.2d

36, 250 N.E.2d 633; Grenier & Co., Inc. v. Stevenson

(1969), 42 Ill.2d 289, 247 N.E.2d 606; Doolin v. Korshak

(1968), 39 [ll.2d 521, 236 N.E.2d 897.) As was stated in

Department of Revenue v. Warren Petroleum Corp.

(1954), 2 Ill.2d 483, 490, 119 N.E.2d 215, 220: “The rea-

sons justifying the classification, moreover, need not ap-

pear on the face of the statute, and the classification must

be upheld if any state of facts reasonably can be conceived

that would sustain it. [Citations.] The burden therefore

rests on one who assails the statute to negate the exis-

tence of such facts.” In the Lake Shore Auto Parts Co.

ease cited above, the United States Supreme Court simi-

larly stated: “There is a presumption of constitutionality

oe te

=_——

which can be overcome ‘only by the most explicit demon-

stration that a classification is a hostile and oppressive

discrimination against particular persons and classes.’

[Citation.] * * * ‘The burden is on the one attacking the

legislative arrangement to negative every conceivable ba-

sis which might support it.’ [Citation.]” 410 U.S. 356,

364, 93 S.Ct. 1001, 1006, 35 L.Ed.2d 351, 358.

In support of their argument that the ordinance

contains an unreasonable and discriminatory classification

of personal property transactions subject to tax, the

plaintiffs in the Williams case rely upon what they con-

sider to be a constitutional infirmity arising from the defi-

nition of the term “personal property” found in subsection

5 of section 200.1-2(A). They point out that section 200.1-

2(A) speaks in terms of a tax being imposed upon trans-

actions involving the lease or rental of “any personal

property” but that subsection 5 defines the term “personal

property” as including only those items of tangible per-

sonal property listed in that subsection. They argue that

this definitien for no discernible reason omits numerous

items of personal property and that such omission is in-

consistent with the clearly expressed intention of the

framers of the ordinance to impose the tax on transactions

involving the lease or rental of “any” personal property.

They urge that this alleged inconsistency creates an ir-

rational and unconstitutional classification which bears

no reasonable relationship to the object of the tax and

renders the ordinance void. The appellate court concurred

with this view when it concluded:

“Tt appears to us that the City, for some unknown

reason, failed to insert the words ‘but shall not be

limited to’ immediately following the words ‘personal

property means’ in the Section 200.1-2[A](5)(a) defi-

nition of ‘personal property.’ However, the tax ordi-

nance does not so read, and as it stands we can per-

ceive no rational basis to justify the imposition of

the tax upon the lease or rental of construction, demo-

lition, household and office equipment where the tax

is not imposed upon the lease or rental of many other

=

items; ¢.g., printing, telephone and industrial equip-

ment and machinery. We can only conclude that the

distinction between the class of those items of per-

‘sonal property which are subject to the tax and those

not included is not one based upon any real and sub-

stantial difference. [Citations.] Accordingly, we hold

the tax ordinance to be invalid.” 36 Ill.App.3d 216,

222-23, 343 N.E.2d 539, 544.

In our opinion, the foregoing construction assigns ex-

aggerated and undue significance to the word “any”

appearing in section 200.1-2(A) and tends to ignore,

what seems to us, the plain intent of subsection 5 to de-

fine the term “personal property” as used in the ordi-

nance. Viewed in its entirety the ordinance, in our judg-

ment, does not express an intention to tax lease or rental

transactions involving any and all personal property; in-

stead, it has as its objective the taxation of transactions

involving the lease or rental of those types of personal

property defined in subsection 5. We find no inconsistency

or ambiguity in these provisions and do not concur with

the argument that the definition contained in subsection

5 is somehow contrary to the intent and object of the tax

or that it reflects a mistaken or irrational omission which

creates an unreasonable and arbitrary classification of

transactions subject to tax.

Furthermore, we are of the opinion that neither

the provisions of the ordinance taxing transactions in-

volving the lease or rental of specified types of personal

property nor those provisions which apply lower tax rates

to transactions involving nonresidents are otherwise pa-

tently arbitrary or unreasonable. As we have noted earlier

in this opinion, it was not necessary for the ordinance to

explain on its face the reasons for classifying the objects

of taxation or establishing a lower tax rate for nonresi-

dents. Considerations of administrative convenience and

expense of collection may have been involved. (Paper Sup-

ply Co. v. City of Chicago (1974), 57 T11.2d 553, 317 N.E.

2d:3; Titus v. Texas Co. (1973), 55 Tll.2d 437, 308 N.E.2d

361; Department of Revenue v. Warren Petrolewm Corp.

et en a ey

eet

—

(1954), 2 Ill.2d 483, 119 N.E.2d 215; People v. Deep Rock

Oil Corp. (1931), 343 Til. 388, 175 N.E. 572.) It is con-

ceivable that the city council may have determined it

would be impractical to impose a tax on all leases or

rentals of personal property, some of which might occur

infrequently or be difficult and unduly expensive to ad-

minister. Or, it may have been thought that the tax would

be unduly burdensome when applied to certain types of

leasing transactions in view of the particular nature of

the property or transaction involved or due to the exis-

tence of other forms of taxation or regulation which af-

fect such property or transactions. The provisions of the

ordinance applying a lower tax rate to real estate trans-

actions involving nonresidents could reflect a determina-

tion by the city council that nonresidents make less use

of city services than do residents and for that reason

should be taxed at a reduced rate. These considerations

furnish a sufficient justification for the classifications in

question, and in our opinion the complaints in both cases

failed to allege a sufficient factual basis to overcome the

presumptive constitutionality of the ordinance.

Plaintiffs also argue that the ordinance is so vague,

unclear and ambiguous that its application to various types

of transactions is unreasonably indefinite, doubtful and

uncertain, thereby precluding its interpretation and en-

forcement in a fair, nondiscriminatory and nonarbitrary

manner. We do not agree. As was stated in Paper Supply

Co. v. City of Chicago (1974), 57 Tll.2d 553, 580, 317 N.E.

2d 3, 17: “In this ordinance, as in many ordinances and

statutes the provisions contain general language, and the

variety of interpretations suggested is limited only by the

ingenuity of counsel who attack them. This case is before

us on the pleadings in declaratory judgment actions, and

upon examination of the ordinance we conclude that there

is no basis to anticipate that application of the provisions

here attacked will present any undue difficulty. Should a

set of facts present itself under which enforcement of

the ordinance results in a deprivation of equal protection

or due process, the matter can be adjudicated at that

—o

time. Meanwhile as we said in Mahin v. Baltis, 34 Ill.2d

413, 216 N.E.2d 132, ‘Factual and legal issues that may

thereafter arise are not now present for decision.’ 34 IIl.2d

413, at 421, 216 N.E.2d 132, at 137.” We do not find the

ordinance to be unconstitutionally vague or uncertain on

its face and are of the opinion that the factual allega-

tions of both complaints were insufficient to support a

finding of unconstitutionality on these grounds.

For the above reasons, we hold that the trial court in

each case erred in not granting the defendants’ motion

to dismiss the complaint. Accordingly, the additional ques-

tions raised on this appeal with respect to plaintiffs’

standing to bring a class action challenging the constitu-

tionality of the ordinance and seeking a refund of taxes

paid become academic and need not be considered.

The judgment of the appellate court in cause No. 48399

and that of the trial court in cause No. 48611 are reversed.

Each cause is remanded to the trial court with directions

to enter an order granting defendants’ motion to dismiss

the complaint and for such further proceedings consistent

with this opinion as may be appropriate.

Reversed and remanded.

=

APPENDIX B

36 Tll.App.3d 216

Richard B. WILLIAMS and Pearl Johnson,

Plaintiffs-A ppellees,

V.

CITY OF CHICAGO, a Municipal Corporation,

and Marshall Korshak, Director of Revenue,

City of Chicago, Defendants-Appellants.

No. 61547.

Appellate Court of Iilinois,

First District, Fifth Division.

Feb. 13, 1976.

SULLIVAN, Justice:

At the request of defendants, we allowed this inter-

locutory appeal pursuant to Supreme Court Rule 308

(Ill.Rev.Stat.1973, ch. 110A, par. 308.) At issue is the

validity of a provision in Chapter 200.1 of the Municipal

Code of Chicago (hereafter the tax ordinance) which im-

poses a tax upon transactions consummated in Chicago

involving the lease or rental of personal property.’ Plain-

tiffs are taxpayers who, as lessees of personal property

on their own behalf and allegedly as representatives of a

class, sought to enjoin the collection of taxes under the

tax ordinance and a judgment declaring it invalid on

constitutional grounds. The trial court, in denying defen-

dants’ motion to dismiss, certified four questions for our

review, and we will address them in the order necessary

for the disposition of this appeal.

*The tax ordinance also imposes a tax on the transfer

of real property. The validity of such tax has not been

challenged on this appeal and our opinion is limited to an

inquiry only of the validity of the tax on transactions in-

volving personal property.

~~

The first question concerns whether plaintiffs’ complaint

states a cause of action in equity where it alleges that a

city tax is unconstitutional because of unreasonable and

discriminating classifications of property and persons sub-

ject to the tax.

It is the general rule that equity will not assume

jurisdiction to grant relief where an adequate remedy at

law exists. (Clarendon Associates v. Korzen, 56 Ill.2d 101,

306 N.E.2d 299; 7 LL.P. Chancery § 31.) Defendants ini-

tially contend that plaintiffs have no cause of action in

equity because they have an adequate remedy at law. In

any event, defendants argue, the allegations of plaintiffs’

complaint do not fall within any of the exceptions to the

general rule under which equity will act regardless of

available legal remedies. These exceptions are set forth

in Clarendon and allow equitable relief where the tax is

either (1) unauthorized by law; or (2) levied upon prop-

erty exempt from taxation.’ Plaintiffs maintain that they

have no adequate remedy at law but, assuming that there

was such a remedy, that their complaint alleges many

particulars in which the tax violates the state and federal

constitutions and, by reason thereof, was unauthorized by

law—the first exception to the general rule.

On oral argument, defendants’ counsel] stated that the

adequate remedy at law available to plaintiffs appears in

section 200.1-8A of the tax ordinance, which provides as

follows:

“Whenever it appears that an amount of tax, interest

or penalty has been paid in error to the Department

of Revenue by a person, association, firm, partnership,

corporation, receiver, executor, conservator, trustee

or other representative appointed by any court (here-

inafter referred to as ‘taxpayer’), who is required or

*The court in Clarendon also stated at page 108, 306

N.E.2d at page 303: “There will be cases of fraudulently

excessive assessments where the remedy at law will not

be adequate and injunctive relief should then be avail-

An ee ee

— 15a —

authorized to collect and remit such transaction tax,

whether such amount be paid through a mistake of

fact or an error of law, such taxpayer may file a

claim for credit with the Department of Revenue on

forms provided by said Department for that purpose.”

This section also requires adjudication of the claim. A

protest procedure is provided for those “taxpayers” dis-

satisfied with the Department’s initial determination.

We believe that a close examination of the lan-

guage in section 200.1-8 indicates that the administrative

procedure set forth therein is intended solely for the bene-

fit of the lessor. The remedy outlined is only available to

the “taxpayer”, who is “required or authorized to collect

and remit such transaction tax.” (Emphasis added.) Only

the lessor is required or authorized to collect and remit

the tax, and we therefore interpret the procedure for

credits and refunds in section 200.1-8 to be a legal remedy

available only to the lessor and not to the lessee herein.

(Cf. Crane Construction Co. v. 8 Clamp and Mfg.

Co., 25 IlL.2d 521. 527, 185 N.E.2d 139.) .This interpreta-

tion is supported by other provisions of the tax ordinance.

Section 200.1-8E provides, in the first instance, not for a

repayment of the funds erroneously collected but for a

letter of credit to be used to offset future collections of

the tax. Such a letter would only be of value to a lessor

who would be collecting and remitting future taxes. Like-

wise, section 200.1-9C provides that the Mayor may, after

a hearing, revoke all city licenses held by the tax evader

as a penalty for failure to pay the tax. Such licenses are,

of course, held by lessors rather than by. lessees. In view

thereof, we believe it is evident that the intent of the tax

ordinance was to provide administrative review only for

the lessor who “collects and remits” the tax, and there-

fore the administrative remedy is not available to lessees.

Applying this reasoning to the instant case, we conclude

that the remedy provided in section 200.1-8 is not avail-

able to the plaintiff-lessees here and, further, inasmuch as

this is the only remedy at law suggested by defendants

and because we have found none in the ordinance, we hold

= ee

that plaintiffs here do not have an adequate remedy at

law and that they have stated a cause of action in equity.

Having so found, it will not be necessary to determine

whether the allegations of plaintiffs’ complaint fall within

any of the Clarendon’ exceptions set forth above which

assume the existence of an adequate remedy at law.

The second question certified inquires whether a

lessee of personal property who pays, but not under pro-

test, a city tax to the lessor on transactions involving the

lease or rental of certain items of personal property, has

standing to challenge the constitutionality of the tax ordi-

nance which places the ultimate incidence of and liability

for payment of the tax on the lessee and the duty of

collecting the tax on the lessor and, where the ordinance

makes no provision, for payment of the tax under protest.

Defendants contend that because plaintiffs did not pro-

test the taxes, the payments were voluntary and thus they

had no standing to challenge the validity of the ordinance.

The case principally relied upon by defendants is Snyder-

man v. Isaacs, 31 I\l.2d 192, 201 N.E.2d 106. However, we

do not believe that case is supportive of defendants’ po-

sition. Snyderman did not involve the question of stand-

ing to challenge the validity of a tax but was an attempt

by a lessee of an automobile to maintain a class action on

behalf of all lessors to obtain a credit for taxes paid under

a statute which had been found to be invalid subsequent

to the payment of the tax. There, the general rule was

applied that taxes voluntarily though erroneously paid

*It should be noted that in Jllinois Bell Telephone Com-

pany v. Allphin, 60 I11.2d 350, 326 N.E.2d 737, it was held

that the first and second Clarendon exceptions, originall

adopted in Owens-Illinois Glass Co. v. McKibbin, 385 md

245, 52 N.E.2d 177, are no longer applicable in those situ-

ations covered by the Administrative Review Act. How-

ever, in the more recent decision of the supreme court in

North Pier Terminal Co. v. Tully, Ill., 343 N.E.2d 507

(1975), an action involving the legality of real property

taxes, the court treated the Clare exceptions as boing

still applicable.

Stee wtee b teN Re Tee_eeeenee nes we

On ee EE oe a ee + i ewe nee

— 17a—

cannot be recovered. Here, plaintiffs’ action does not seek

a refund of taxes paid but rather sought a declaration

that the tax is unconstitutional and a permanent injunc-

tion against its further collection.

We believe that Crane Construction Co., swpra, is con-

trolling here. In that case, Symons, a lessor of property,

was required to collect use taxes from its lessee (Crane)

and to remit the Retailer’s Occupation Tax to the Depart-

ment of Revenue. No provision for protest by a lessee

was provided in the statute. Plaintiff filed a complaint in

chancery against its lessors (Symons) and joined as de-

fendants the Director of Revenue, the State Treasurer

and the Attorney General. The complaint alleged that un-

less equitable relief was granted to plaintiff and others

similarly situated, they would be required to pay use taxes

to Symons under duress and, unless restrained, they

feared that the lessor would forward the taxes so received

to the Department of Revenue without making such pay-

ments under protest or otherwise protecting the rights of

plaintiff and other members of the class. Defendants con-

tended that Crane had no standing to challenge the tax.

The court held, however, that inasmuch as the statute pro-

vided no means of protest to lessees subject to the tax,

they had standing to bring the action in their own right,

stating 25 Ill.2d at pages 527-28, 186 N.E.2d at page 143:

“Although the retailers’ occupation tax is not laid on

plaintiff, the use tax is. It pays use tax, however, not

directly to the State, but to its suppliers, in this case

Symons Clamp & Manufacturing Company. Symons

collects use tax from Crane and remits retailers’ oc-

cupation tax to the Department of Revenue. Crane

obviously has standing to challenge the validity and

applicability of the use tax and is not compelled to

rely upon its lessor, Symons, to protect its interests.

To the extent to which the validity of the use tax and

its application to plaintiff is dependent upon the va-

lidity of the retailers’ occupation tax, it may also

challenge that tax. In this case, plaintiff has followed

an appropriate method for litigating questions which

it has a right to have determined.”

=

Here, also, in the absence of any means of administra-

tive review, reason dictates that the lessees who bear the

burden of the tax have standing to challenge its validity.

In the third question certified, we are asked to deter-

mine whether the tax ordinance in question violates con-

stitutional equal protection provisions because Section

200.1-2A5(a) and (b) applies only to the transfer of cer-

tain types of personal property and because Section 200.1-3

taxes non-residents of the City of Chicago at a rate lower

than residents.

We initially note that Section 200.1-2A is general in

nature, providing that the tax shall be imposed upon

“transactions consummated in the City of Chicago involv-

ing the lease or rental of amy personal property.” (Em-

phasis added.) The term “personal property” is defined

in Section 200.1-2A(5)(a) and (b), as follows:

“(a) As used in paragraph 200.1-2A, personal prop-

erty means motor and other vehicles * * *, construc-

tion and demolition equipment * * * ; household and

office equipment * * * ; clothing * * * ; office and com-

puting equipment * * *; and snch miscellaneous

equipment as musical instruments.

(b) As used in paragraph 200.1-2A, personal prop-

erty shail also mean leased time on equipment not

otherwise itself rented * * *.”

It is obvious that this section omits, for no discernible

reason, the leases or rentals of numerous other items of

personal property.

Plaintiffs first challenge the validity of the tax because

it fails to include in the definition of personal property

items such as printing equipment, signs, ice making ma-

chines, burglar alarms, telephone equipment, industrial

equipment and machinery. They argue that no rational

basis exists for this exclusion. Also, on equal protection

grounds, plaintiffs challenge the provision of Section

200.1-3A, which provides that non-residents of the City

of Chicago shall pay the tax at a lesser rate than resi-

=

dents. In 1974 non-residents paid only 95% of the rate

applied to residents; in 1975, 90%; and in subsequent

years, the rate continues to decrease to its final level of

It is well established that the legislature has broad

powers to establish reasonable classifications in de-

fining subjects of taxation. (Klein v. Hulman, 34 IIl.2d

343, 346, 215 N.E.2d 268; People ex rel. Holland Coal Co.

v. Isaacs, 22 I1l.2d 477, 176 N.E.2d 889.) It may define a

general class which is subject to an occupation tax and

then specifically remove a subclass (Bode v. Barrett, 412

Ill. 204, 106 N.E.2d 521; Modern Dairy Co. v. Department

of Revenue, 413 Ill. 55, 108 N.E.2d 8), or it may merely

define a subclass without naming the general class (Fiorito

v. Jones, 39 Ill.2d 531, 236 N.E.2d 698; People v. Deep

Rock Oil Co., 343 Ill. 388, 175 N.E. 572.) A home rule unit

enacting taxing provisions is likewise entitled to the same

broad powers to establish reasonable classifications in de-

fining subjects of taxation. (Ill.Const.1970, Art. VII, Séc.

6.) However, regardless of the manner in which the classes

to be taxed have been defined, the classification must be

based upon real and substantial differences between per-

sons taxed and those not taxed (Klein, supra; City of

Chicago v. Ames, 365 Ill. 529, 7 N.E.2d 294), and the clas-

sification must bear some reasonable relationship to the

object of the legislation (Modern Dairy Co. v. Dep. of

Revenue, supra) or to public policy (Reif v. Barrett, 355

Til. 104, 188 N.E. 889). In any law classifying the subjects

or objects of non-property taxes or fees, the classes shall

be reasonable and the subjects and objects within each

class shall be taxed uniformly. (Tll.Const., 1970, Art. IX,

Sec. 2.) The constitutional mandate of uniformity of a

tax may be violated by including within a class those not

in fact within the class (People ex rel. Holland Coal Co.

v. Isaacs, supra; Svithiod Singing Club v. McKibbin, 381

Til. 194, 44 N.E.2d 904; Scully v. Hallihan, 365 Tl). 185, 6

N.E.2d 176; Banghart v. Walsh, 339 Til. 132, 171 N.E.

154; Wedeswetler v. Brundage, 297 Tl. 228, 130 N.E. 520),

as well as by excluding from a class those properly be-

longing to it (Ohio Oil Co. v. Wright, 386 Ill. 206, 53

N.E.2d 966; City of Chicago v. Ames, swpra; People ex

rel. Holland Coal Co., supra; Lippman v. People, 175 Ii.

101, 51 N.E. 872).

Counsel for defendants here seeks to uphold the

validity of the tax by urging that it is impossible for a

legislative body to consider every imaginable and excep-

tional case in enacting an ordinance. Further, counsel

states that differences in businesses or business methods

have been held to justify tax classifications. We are not

convinced by this argument. It appears to us that the

City, for some unknown reason, failed to insert the words

“but shall not be limited to” immediately following the

words “personal property means” in the Section 200.1-2

(5)(a) definition of “personal property.”* However, the

tax ordinance does not so read, and as it stands we can

perceive no rational basis to justify the imposition of the

tax upon the lease or rental of construction, demolition,

household and office equipment where the tax is not im-

posed upon the lease or rental of many other items; ¢.g.,

printing, telephone and industrial equipment and ma-

chinery. We can only conclude that the distinction between

the class of those items of personal property which are

subject to the tax and those not included is not one based

upon any real and substantial difference. (Klein, supra;

City of Chicago, swpra.) Accordingly, we hold the tax

ordinance to be invalid.

Inasmuch as this invalidity negates the tax itself, we

need not answer further any remaining questions certi-

fied, and we will remand this cause for the disposition of

any remaining issues consistent with the content of this

opinion.

Order denying motion to dismiss is affirmed.

Cause remanded.

BARRETT and DRUCKER, JJ., concur.

20,124, personal property means, bt shall not be ated

200, Peay eae oepeny maaan, Cat CUES ast Se Eee

in. een © fer ae a

— 2a —

APPENDIX C

Section 200.1-2 of the Chicago Transaction Tax Ordi-

nance, Municipal Code of Chicago, 4201.1 et seq. (1973):

There is hereby imposed and shall immediately ac-

crue and be collected a tax, as herein provided, on all

transactions designated herein. ... . :

Transactions consummated in the City of Chicago

involving the lease or rental of any personal property,

valued in money, whether received in money or other-

wise by an individual person, domestic or foreign

association, company, or corporation or certificates of

interest in a business conducted by a trustee or trust-

ees, made after the Ist day of January, 1974, whether

made upon or shown by the books of the person, as-

sociation, company, corporation, or trustee, or by any

paper or agreement or memorandum or other evi-

dence of such lease or rental, when delivery or use

also takes place in the City of Chicago.

Section 200.1-2 A(2) of the Chicago Transaction Tax

Ordinance, Municipal Code of Chicago, §§201.1 et seq.

(1973) :

The ultimate incidence of and liability for payment

of said tax shall be borne by the lessee involved in

any such transaction. The tax herein levied shall be

in addition to any and all other taxes. It shall be the

duty of the person or persons making or effectuating

the lease or rental to pay to the City of Chicago the

tax provided by this Section; provided, however, that

this subdivision shall not apply to any lease or rental

wherein the lessee is a governmental entity or inter-

national organization and is not subject to the tax.

— 22a — — 2a —

Section 200.1-2 A(5)(a) of the Chicago Transaction Tax Recorder of Deeds of Cook County or in the Office

Ordinance, Municipal Code of Chicago, §§201.1 et seq. of the Registrar of Titles of Cook County made after

(1973): | the Ist day of January, 1974, by any person, domestic

As used in paragraph 200.1-2A, personal property

means motor and other vehicles which shall include

but are not limited to automobiles, automobile trailers,

bicycles, motor driven bicycles, motorcycles, buses,

trucks, truck tractors, truck trailers, construction and

demolition equipment, which shall include but is not

limited to ditch digging equipment, well boring ap-

paratus, road construction and maintenance equip-

ment such as spreaders, mixers, loaders, graders, roll-

ers, scarifiers, scrapers, earth movers, power shovels,

cranes, compressors, concrete mixers, garden and land-

scaping equipment, ladders, floor machines, search-

lights, floodlights, hand and electrical tools, spraying

equipment, and scaffolding; household and office equip-

ment, which shall include but is not limited to carpets

and rugs, chairs and tables, chinaware and glassware,

furniture, beds, television and radio, washing ma-

chines, dryers and ironers, water softening equipment;

clothing, including but not limited to formal wear and

other types of clothing; office and computing equip-

ment, including but not limited to data processing

equipment, computers, accounting and bookkeeping

machines, adding and calculating machines, type-

writers, addressing machines, dictating machines, dup-

licating machines, mailing machines, copy machines;

and such miscellaneous equipment as musical instru-

ments.

or foreign association, company, or corporation, or

a trustee, or by delivery of any deed of said real

property in the City of Chicago, and whether invest-

ing the owner with the beneficial interest in or legal

title to said real property, or merely the possession

or use thereof for any purpose, or to secure future

payment of money or the future transfer of any such

real property.

Section 200.1-2 B (2) of the Chicago Transaction Tax

Ordinance, Municipal Code of Chicago, 4201.1 et seq.

(1973) :

The ultimate incidence of and liability for payment

of said tax shall be borne by the grantee or purchaser

involved in any such transaction. The tax herein lev-

ied shall be in addition to any and all other taxes. It

shall be the duty of the person or persons making or

effectuating the sale, or transfer or registration to pay

the tax provided by this Section; provided, however,

that this subdivision shall not apply to any transfer

wherein the vendor or transferor is a governmental

entity or international organization and is not subject

to the tax.

Section 200.1-3 of the Chicago Transaction Tax Ordi-

nance, Municipal Code of Chicago, §§201.1 et seq. (1973):

A. Rates for Nonresidents. Notwithstanding the

Section 200.1-2(B) of the Chicago Transaction Tax Ord- provisions of Section 200.1-2 of this Chapter, the rates

inance, Municipal Code of Chicago, §§201.1 et seq. of tax set forth in this Section shall apply in the case

(1973) : of those transactions made within the City of Chicago

[There is hereby imposed and shall immediately ac

erue and be collected a tax, as herein provided, on all

transactions designated herein. ... :]

Transactions consummated in the City of Chicago

involving transference of title to real property which

is located within the City of Chicago as evidenced by

the filing or recordation of a deed in the Office of the

by a nonresident subject to the taxes imposed by Sec-

tions 200.1-2 A and B of this Chapter. On such trans-

actions by nonresidents during the periods set forth

in the following table, the rates of tax shall be the

percentages set forth in such tables of the rates of tax

=— ae

provided in Sections 200.1-2 Al and Bi of this Chap-

ter.

Period

January 1, 1974—-

December 31, 1974

January 1, 1975—

December 31, 1975

January 1, 1976—

December 31, 1976

January 1, 1977—

December 31, 1977

January 1, 1978—

Thereafter

Percentage of Rates of Tax

Provided in Sections 200.1-2

Al and B1 of this Chapter

95%

90%

80%

65%

50%

The tax so calculated shall not be carried out in its

computation beyond four decimal points, that is, it

shall be computed to the nearest one-hundreth of one

percent.

=— c Tray